India’s Bank of Baroda expects margin pressure to persist for two more quarters

BENGALURU: India’s Bank of Baroda expects margin pressure to continue through the second quarter of this fiscal, after a drop in fourth-quarter margins and core lending income sent its shares tumbling over 10% on Tuesday.

The company’s net interest income, or the difference between interest earned on loans and paid on deposits, fell to 110.20 billion rupees ($1.31 billion) for the quarter ended March 31 from 117.93 billion rupees a year earlier. Its domestic net interest margin dropped to 3.02% from 3.45% earlier.

CEO Debadatta Chand said at a press conference that the state-owned lender anticipates margin pressure to persist for the first two quarters of this fiscal year, which started on April 1. He did not provide details.

Shares of Bank of Baroda, India’s third-largest state-run lender by assets, fell more than 10% after the results. The stock was the biggest loser on the Nifty PSU bank index, which settled nearly 5% lower.

Indian lenders have grappled with tighter liquidity conditions for the last few quarters, forcing them to pay higher interest to attract customer deposits.

Bank of Baroda’s interest paid on deposits jumped 10% compared to a 3.3% rise in interest earned on loans. Domestic cost of deposits jumped to 5.33% from 5.11% a year earlier.

The lender’s cost of deposits peaked in the fourth quarter, CEO Chand said.

“These are weak results from Bank of Baroda, said Anand Dama, head of BFSI at Emkay Global Financial Services, with “margins and slippages disappointing investors.”

Fresh slippages, or loans classified as bad for the first time, rose to 28.73 billion rupees during the quarter from 28.55 billion rupees a year earlier and 25.03 billion rupees in the previous quarter.